Personal Tax on a Company Car Benefit

For many years a company car has been taxed based on two things, the list price and the CO2 emissions. These two figures combined create what is known as a ‘taxable benefit in kind’.

There are now many different engine types that can make a big impact on this taxable benefit in kind figure. So we took an example budget of roughly £30,000, and had a look at the different options of Volkswagen Golf available (all registered after April 2020), to see what the most tax efficient choice was for a higher rate taxpayer:

Engine Type Fully Electric (BEV) Petrol/Hybrid (PHEV) Petrol Diesel
List Price £31,075.00 £32,015 £28,445 £29,230
CO2 Emissions 0g 45g 118g 118g
2020/21 Monthly Tax Due £128.06 £246.53 £292.30
2021/22 Monthly Tax Due £10.36 £138.74 £256.01 £302.05
2022/23 Monthly Tax Due £20.72 £149.41 £265.49 £311.79

Certainly from a personal tax side of things, the fully electric model is the winner, saving over 90% of tax compared to the diesel option. And this tends to be the result in most scenarios, because no petrol or diesel engine can compete with the low CO2 emissions that hybrid and electric engines produce.

Personal Tax on a Company Car Benefit

For many years a company car has been taxed based on two things, the list price and the CO2 emissions. These two figures combined create what is known as a ‘taxable benefit in kind’.

There are now many different engine types that can make a big impact on this taxable benefit in kind figure. So we took an example budget of roughly £30,000, and had a look at the different options of Volkswagen Golf available (all registered after April 2020), to see what the most tax efficient choice was for a higher rate taxpayer:

Certainly from a personal tax side of things, the fully electric model is the winner, saving over 90% of tax compared to the diesel option. And this tends to be the result in most scenarios, because no petrol or diesel engine can compete with the low CO2 emissions that hybrid and electric engines produce.

What Rate will my Company Car be?

As we mentioned on the “Personal Tax on a Company Car” Section, your “taxable benefit in kind” is based on two things, list price and CO2 emissions. The list price is multiplied by a percentage, determined by your CO2 emissions. This then creates the figure that is taxable upon you, the employee.

Below are the rates for the year ended 5 April 2021, which as you will see are more favoured to the environmentally friendly motors:

Cars registered before 6 April 2020

CO2 (g/km) Electric Range (Miles) 2020/21 2021/22 2022/23

0

n/a 0% 1% 2%
1-50 >130 2% 2% 2%
1-50 70-129 5% 5% 5%
1-50 40-69 8% 8% 8%
1-50 30-39 12% 12% 12%
1-50 <30 14% 14% 14%
51-54 15% 15% 15%
55-59 16% 16% 16%
60-64 17% 17% 17%
65-69 18% 18% 18%
70-74 19% 19% 19%
75-79 20% 20% 20%
80-84 21% 21% 21%
85-89 22% 22% 22%
90-94 23% 23% 23%
95-99 24% 24% 24%
100-104 25% 25% 25%
105-109 26% 26% 26%
110-1114 27% 27% 27%
115-119 28% 28% 28%
120-124 29% 29% 29%
125-129 30% 30% 30%
130-134 31% 31% 31%
135-139 32% 32% 32%
140-144 33% 33% 33%
145-149 34% 34% 34%
150-154 35% 35% 35%
155-159 36% 36% 36%
160+ 37% 37% 37%

 

Cars registered after 6 April 2020

CO2 (g/km) Electric Range (Miles) 2020/21 2021/22 2022/23
0 n/a 0% 1% 2%
1-50 >130 0% 1% 2%
1-50 70-129 3% 4% 5%
1-50 40-69 6% 7% 8%
1-50 30-39 10% 11% 12%
1-50 <30 12% 13% 14%
51-54 13% 14% 15%
55-59 14% 15% 16%
60-64 15% 16% 17%
65-69 16% 17% 18%
70-74 17% 18% 19%
75-79 18% 19% 20%
80-84 19% 20% 21%
85-89 20% 21% 22%
90-94 21% 22% 23%
95-99 22% 23% 24%
100-104 23% 24% 25%
105-109 24% 25% 26%
110-1114 25% 26% 27%
115-119 26% 27% 28%
120-124 27% 28% 29%
125-129 28% 29% 30%
130-134 29% 30% 31%
135-139 30% 31% 32%
140-144 31% 32% 33%
145-149 32% 33% 34%
150-154 33% 34% 35%
155-159 34% 35% 36%
160-164 35% 36% 37%
165-169 36% 37% 37%
170+ 37% 37% 37%

 

What Rate will my Company Car be?

As we mentioned on the “Personal Tax on a Company Car” Section, your “taxable benefit in kind” is based on two things, list price and CO2 emissions. The list price is multiplied by a percentage, determined by your CO2 emissions. This then creates the figure that is taxable upon you, the employee.

Below are the rates for the year ended 5 April 2021, which as you will see are more favoured to the environmentally friendly motors:

Personal Tax on a Company Van Benefit

If a vehicle classes as a van, the benefit is taxed slightly different compared to a car. Instead of looking at the list price and CO2 emissions, there is a flat rate figure that HM Revenue and Customs provide. For the year ended 5 April 2021, this figure is £3,490.

There is also the option of a zero emission van. This is an even smaller taxable benefit in kind compared to a standard company van. For the year ended 5 April 2021, the taxable benefit is £0.00 (But is most likely going to increase slightly in future tax years).

For more on whether a vehicle classes as a car or a van for personal tax purposes, see the “Is it a Car or a Van?” section.

 

Fuel

Employer Provided Fuel

If your employer provides fuel for your company vehicle, this will give rise to a separate taxable benefit in kind.

If fuel is provided for a company car, you take an apportionment of the flat rate figure, depending on your vehicle’s CO2 emissions. The flat rate for the year ended 5 April 2021 is £24,500. For example, using our Volkswagen Golf from the “Personal Tax on a Company Car Benefit” section, the petrol car would have a fuel benefit of £6,370, whereas the diesel car would have a fuel benefit of £7,350.

Therefore, if you are a higher rate taxpayer (paying tax at 40%), a diesel fuel benefit of £7,350 would cost you £2,940 in tax. It is therefore worth considering whether you would actually spend this much on fuel, because if not, the benefit simply isn’t worth it.

If fuel is provided for a company van, a standard flat rate figure is used, as like the van benefit itself. For the year ended 5 April 2021, this figure is £666.

Mileage Rates

If you use a vehicle for a genuine business trip (using either a company car or a private car), your employer can reimburse you by using HM Revenue and Customs’ flat rates.

According to HM Revenue and Customs, trips are seen as business-related when the work can’t be done unless the trip is made, and the employee needs to be somewhere other than the usual workplace to carry out the job. Therefore, trips such as visiting clients, attending courses and a work site are inclusive.

There are different rates depending on whether you use a company vehicle or a private vehicle. For a private vehicle, the current rates are:

Type of Vehicle First 10,000 miles Above 10,000 miles
Cars and Vans 45p 25p
Motorcycles 24p 24p
Bikes 20p 20p

For a company vehicle, HM Revenue and Customs update the advisory rates every quarter, and can be found using the following link: https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

It is worth noting, if your employer reimburses you below these amounts, you can make a claim for additional tax relief on the difference. If your employer reimburses you above these amounts, the difference will be subject to income tax in full.

Fuel

Employer Provided Fuel

If your employer provides fuel for your company vehicle, this will give rise to a separate taxable benefit in kind.

If fuel is provided for a company car, you take an apportionment of the flat rate figure, depending on your vehicle’s CO2 emissions. The flat rate for the year ended 5 April 2021 is £24,500. For example, using our Volkswagen Golf from the “Personal Tax on a Company Car Benefit” section, the petrol car would have a fuel benefit of £6,370, whereas the diesel car would have a fuel benefit of £7,350.

Therefore, if you are a higher rate taxpayer (paying tax at 40%), a diesel fuel benefit of £7,350 would cost you £2,940 in tax. It is therefore worth considering whether you would actually spend this much on fuel, because if not, the benefit simply isn’t worth it.

If fuel is provided for a company van, a standard flat rate figure is used, as like the van benefit itself. For the year ended 5 April 2021, this figure is £666.

Mileage Rates

If you use a vehicle for a genuine business trip (using either a company car or a private car), your employer can reimburse you by using HM Revenue and Customs’ flat rates.

According to HM Revenue and Customs, trips are seen as business-related when the work can’t be done unless the trip is made, and the employee needs to be somewhere other than the usual workplace to carry out the job. Therefore, trips such as visiting clients, attending courses and a work site are inclusive.

There are different rates depending on whether you use a company vehicle or a private vehicle. For a private vehicle, the current rates are:

For a company vehicle, HM Revenue and Customs update the advisory rates every quarter, and can be found using the following link: https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016

It is worth noting, if your employer reimburses you below these amounts, you can make a claim for additional tax relief on the difference. If your employer reimburses you above these amounts, the difference will be subject to income tax in full.

0% Benefit in Kind Figures from 6 April 2020

HM Revenue and Customs have begun encouraging taxpayers to invest in low emission cars, with some very appealing benefit in kind figures.

From the 6 April 2020, fully electric (BEV) vehicles will carry a 0% benefit in kind rate (as demonstrated in the example on the “Personal Tax on a Company Car Benefit “Section).

It is worth noting however, that this will increase to 1% for the year ended 5 April 2022, and 2% for the year ended 5 April 2023. Compared to diesels which will have a rate of up to 37%, there are still some significant savings to be made.

Don’t forget to check out how an employer can provide tax-free charge points, as well as other great benefits of electric cars, at our Daily Running Expenses Section.

Premium Electric Cars

It is always assumed that the range of an electric car is limited, which can be a put off for some people. But that is no longer the case.

Here is a list of some of the fully electric cars we’ve come across, that have a staggering range of 200+ miles:

Vehicle Range (miles)
Nissan Leaf Plus 226
Kia Niro EV 279
Chevrolet Bolt EV 255
Volkswagen ID 3 261

A fully electric car doesn’t mean you have to give up on luxury either, with premium makes offering cars such as:

Vehicle Range (miles)
Tesla Model 3 322
Mercedes EQC 276
Audi E-Tron Quattro 310
Jaguar i-Pace 292

Premium Electric Cars

It is always assumed that the range of an electric car is limited, which can be a put off for some people. But that is no longer the case.

Here is a list of some of the fully electric cars we’ve come across, that have a staggering range of 200+ miles:

A fully electric car doesn’t mean you have to give up on luxury either, with premium makes offering cars such as:

Government Grants

A further encouragement to buying low emission vehicles is by way of a government grant. You can get a discount on the price of a brand new low emission vehicle through a grant that the government gives to the vehicle dealership.

The amount of the grant is primarily dependant on the type of vehicle purchased, but includes:

  • Cars
  • Motorcycles
  • Mopeds
  • Vans
  • Taxis
  • Large vans and trucks

You can get a grant of up to £3,500 for a car, and up to £8,000 for a van.
Remember though, that this grant will not reduce the taxable benefit in kind, as that is based on the original list price.
You can find out more by clicking on the following link: https://www.gov.uk/plug-in-car-van-grants

Practicality of a Vehicle

Refuelling

What engine type you choose also depends on your lifestyle. Whilst the electric car may be significantly cheaper from a personal tax point of view, it may not be the most practical option for the long distance driver.

Technology has shown massive improvements to the range of an electric car, with cars such as the Kia e-Niro, costing only £35,000, carrying a range of 230 miles, or the more luxurious Tesla Model 3, with a staggering range of 261 miles.

Whilst these ranges are impressive, it doesn’t change the fact that an electric car takes a minimum number of hours to recharge, compared to a quick refuel of a petrol tank. This is something you may wish to consider when making your choice.

Diesel Particulate Filters

Every diesel engine comes with a diesel particulate filter. This filter captures and stores exhaust soot, which periodically has to be ‘burned off’ through a long distance journey. Should you drive short distances regularly, this build-up of soot won’t be burned off, as your engine simply won’t be getting hot enough. It is worth considering whether a diesel engine will suite your lifestyle.

Having an Old Car as a Company Car

Remember, a company car is taxed on the original list price, and the CO2 emissions. If you buy a considerably older vehicle at a bargain, the taxable benefit in kind is still going to be based on the original list price. In some cases, this can mean that the tax due on a car benefit actually exceeds the market value of the vehicle itself!

Should I Lease or buy my Employee’s Company Vehicle?

For an employer, whether the vehicle is leased or purchased may have substantial differences to the amount of tax relief obtained. In either situation the benefit in kind position for your employees is not affected.

Purchase

If you purchased a vehicle, you will be able to claim Capital Allowances on it. This is a set percentage that can be offset against your profit, and is dependent upon the vehicle’s CO2 emissions as follows:

CO2 Emissions Tax Relief Eligible (per annum)
110g or more 6%
51g to 109g 18%
50g or less 100% (first year only)

Hire Purchase (HP)

Under a hire purchase, legal ownership of the vehicle passes to the company at the date the contract is signed. You will then simply pay for the asset over a period of time, normally on a monthly basis.

Monthly HP repayments will contain both an interest and a capital repayment element. The capital element is not an allowable deduction against business profits, whereas the interest element is.

You will however, be able to claim capital allowances on the capital element of the repayments, similar to if you purchased the vehicle (as above).

Lease

There are two types of lease, an operating lease and a finance lease.

An operating lease is where the business simply pays a rental payment to the legal owner of the asset. All of the expenses incurred can be offset against business profits.

A finance lease is where the business is required to treat the lease in the same way had it bought the vehicle by way of a loan. The business will therefore depreciate the asset over its normal life, and will charge depreciation and interest payments against business profits. This is one of the only times a business will get a tax deduction for depreciation.

In either situation, the asset is being borrowed from someone else, so no capital allowances can be claimed.

Where the vehicle in question has CO2 emissions of 110g or more, only 85% of the lease costs will be allowable.

If your business is VAT registered, you can also reclaim 50% of the VAT relating to the lease of company vehicles.

Should I Lease or buy my Employee’s Company Vehicle?

For an employer, whether the vehicle is leased or purchased may have substantial differences to the amount of tax relief obtained. In either situation the benefit in kind position for your employees is not affected.

Purchase

If you purchased a vehicle, you will be able to claim Capital Allowances on it. This is a set percentage that can be offset against your profit, and is dependent upon the vehicle’s CO2 emissions as follows:

Hire Purchase (HP)

Under a hire purchase, legal ownership of the vehicle passes to the company at the date the contract is signed. You will then simply pay for the asset over a period of time, normally on a monthly basis.

Monthly HP repayments will contain both an interest and a capital repayment element. The capital element is not an allowable deduction against business profits, whereas the interest element is.

You will however, be able to claim capital allowances on the capital element of the repayments, similar to if you purchased the vehicle (as above).

Lease

There are two types of lease, an operating lease and a finance lease.

An operating lease is where the business simply pays a rental payment to the legal owner of the asset. All of the expenses incurred can be offset against business profits.

A finance lease is where the business is required to treat the lease in the same way had it bought the vehicle by way of a loan. The business will therefore depreciate the asset over its normal life, and will charge depreciation and interest payments against business profits. This is one of the only times a business will get a tax deduction for depreciation.

In either situation, the asset is being borrowed from someone else, so no capital allowances can be claimed.

Where the vehicle in question has CO2 emissions of 110g or more, only 85% of the lease costs will be allowable.

If your business is VAT registered, you can also reclaim 50% of the VAT relating to the lease of company vehicles.

Daily Running Expenses

Fuel Prices

We all know about petrol and diesel prices. Diesel tends to be a little more expensive than petrol, but generally gets better mileage (especially on motorway journeys).

Electric Prices

For a typical electric car with a 60kWh battery (giving a range of around 200 miles), charging from home would cost you around £8.40 for a full charge.

As an encouragement by the government, public charge points at supermarkets and carparks are often free to use for the duration of your stay.

Most motorway service stations offer ‘rapid charging’ too. This typically costs £6.50 for a 30 minute charge (giving our example 60kWh electric car around 100 miles range).

Employer Provided Electric

An employer can provide their employees with an electric charge point (both at home or at work), and there are no tax implications whatsoever. They can also provide an electric card to be used at local charge points, with no tax implications.

The employer can even reimburse their employees personal electric bills relating to charging their electric car at home, but evidence that this is purely related to charging the car must be provided.

Other Expenses for Employers to Consider

Insurance

In 2018, price comparison website Comparethemarket found that some electric cars cost as much as 45% more to insurance compared to their conventional counterparts. This shouldn’t be a put off however, as each individual circumstance is different.

A general idea as to how much the insurance of a vehicle will be is its insurance group rating. The higher the group, the costlier it is to insure. For example, an all-electric Nissan Leaf has an insurance group rating of 22, whilst its sister petrol version is rated as group 11.

Road Tax

Road tax is based on a vehicle’s CO2 emissions. The higher the emissions, the higher the tax. But unless you’re considering a big engine fuel guzzler, it should make very little impact on your decision.

You can find out a vehicle’s exact road tax here: https://www.gov.uk/calculate-vehicle-tax-rates

Vehicle Maintenance

Every car wears through tyres, and tyre costs are reflected on the car’s speed rating and revenue weight. The faster and heavier the car, the more expensive the tyres. An electric car tends to weigh a considerable amount more due to the batteries it has, which means there’s the potential for tyres to cost you slightly more in comparison.

There’s an upside to an electric car however. An electric car has no clutch, no gearbox, and only one moving part (compared to the hundreds of moving parts in a combustion engine). This makes an electric vehicle require less periodic maintenance, and more reliable in comparison.

Tax-Free Pool Cars

Pool Cars are a great choice if you have several employees needing to use a company car, but don’t use the car for personal usage. A pool car can be in the form of a car or a van.

The same principles apply to the car with regards to the business claiming the car costs, but there is one main tax advantage. There is no personal tax due for the employees.

We must stress however, that HM Revenue and Customs are very keen to ensure that employees don’t use pool cars as their regular vehicle in an attempt to avoid tax. You therefore have to meet, and prove, the following conditions:

  • It can’t be available for private use by any employee
  • It must be made available, and actually used by, more than one employee
  • It must not be ordinarily used by one employee to the exclusion of others
  • Any private use of the vehicle must be for the purpose of business (for example, if the car were to be taken home to allow an early start on a business trip)
  • The car must not normally be kept overnight at any employee’s home, other than the circumstances described above

Is it a Car or a Van?

It has always been a ‘grey area’ when it comes to determining whether a vehicle is classed as a car or a van for income tax purposes. In a recent tribunal case with HM Revenue and Customs, the Volkswagen Kombi and the Vauxhall Vivaro, which may seem similar to the naked eye, have actually been classed as different types of vehicle. This resulted in a massive difference in the amount of tax due.

As you can imagine, this makes categorising this type of vehicle somewhat difficult, as the guidelines are open to interpretation.

If you are unsure whether your vehicle classes as a car or a van, don’t hesitate to contact a member of our tax team who will be happy to help.